PUBLISHED: NOVEMBER 13, 2000

On October 19, the Verkhovna Rada (Parliament of Ukraine) adopted the bill on Non-Entrepreneurial Organizations at the first reading by a vote of 242 to 208. The October 19 vote was not final, and some amendments may be made before the bill’s passage. However, these amendments are unlikely to change the basic structure of the law.

The history of the legislation begins in early 1997, when drafters of competing NGO draft laws in Ukraine created a joint drafting group and, with ICNL’s assistance began working to formulate a single NGO draft law. This joint effort culminated later that year in the drafting of a Law on Civic Organizations. Up until recently, the draft had been introduced several times in the Verkhovna Rada but was never considered. ICNL has provided assistance on this draft from the early stage and most of ICNL’s recommendations were incorporated in the draft. These recommendations were systematically discussed during round tables throughout the country. Participants in these round tables included representatives of the NGO sector, donor organizations, the state apparatus, as well as parliamentarians and lawyers. The draft was finally reintroduced at the end of Summer 2000 under the name Draft Law on Non-Entrepreneurial Organizations.

The major provisions of the bill include:

• A definition of non-business activity that equates the term with activities that aid in securing personal rights. This is an improvement over former drafts, which listed specific activities or secured only membership rights.
• A distinction between public (PBOs) and mutual benefit organizations (MBOs).
• An allowance for both domestic and foreign legal entities to become founders or members of Ukrainian NGOs. This right was formerly restricted to charities and associations of NGOs.
• A reduction of the minimum number of founders required: two founders for associations and one founder for a foundation.
  A regulation concerning the creation of a foundation via a will. Previously a Ukrainian NGO could only be established inter vivos.
• Establishment of the Ministry of Justice and its branches as the single registration body for NGOs.
• Clearer procedures for registration and appeals for refusal of registration.
• Reduction of registration fees (a five-fold decrease for foreign and international NGOs).
• A detailed list of documents and information to be included in the register and a guarantee of the public’s right to access this information.
• A definition of “stakeholders” and procedures for preventing conflicts of interest and eventual penalties, including joint and several liability of the board members for any damages caused by the NGO.
• Permission for NGOs to engage in business activity. There are some restrictions for public benefit organizations: PBOs may engage in related business activities only if they are consistent with PBO statutory objectives, and unrelated business activities may be carried out only through wholly-owned subsidiaries of the PBO. These restrictions do not apply to the activities of MBOs, though it is implied that the activities must be related to the provision of services for the MBOs’ members.
• Stricter requirements for reporting and audits. Internal audits are compulsory for all NGOs and the members have the right to access any financial information. An external audit is also permitted.

NGOs and legal experts in Ukraine will continue to discuss the bill and submit suggested amendments to Parliament.

This report is based on Alexander Vinnikov’s article, “The Bill on Non-Business Corporations is Passed at First Reading in Ukraine,” which will appear in the December 2000 issue of the International Journal of Not-for-Profit Law.